There is a discussion going on here --> EFX Group - Introduction ...
... about ECN commissions and in that thread I posted a scenario regarding what a long-term/higher-timeframe trend trade could cost in commissions even with more losses to wins. It looked like this:
3 wins @ 200 pips each = 600 pips = $6000
4 losses @ 50 pips each = 200 pips = $2000
Total 7 trades @ $20.80 RT = $145.60
$6000 - $2000 = $4000 profit
$145.60 / $4000 = 3.64% commission
I realize that 200 pips is actually conservative for a long-term/higher-timeframe trend, as it could go 400 - 500+ pips before it starts retracing in many cases, but I used this as a more conservative scenario.
Well, all this calculating got me excited and I went on to do more calculating (my husband is gonna be proud of me, lol, since I hate math, lol). I figured "okay, what if you need to put a 100 pip SL in case 50 was too tight," so I did the following calcs:
3 wins @ 200 pips each = 600 pips = $6000
4 losses @ 100 pips each = 400 pips = $4000
Total 7 trades @ $20.80 RT = $145.60
$6000 - $4000 = $2000 profit
$145.60 / $2000 = 7.28% commission
As I mentioned in the other thread, to me, that's still a very reasonable commission rate to pay when making a profit.
Now, the above scenario was based on having less winning trades to losing ones (3 wins, 4 losses), but the $ amount value was greater on the wins, thus you still come out ahead. Just imagine if you had more winning trades than losing ones, lol!
Having done the commission analysis for long-term trades, I then got curious to crunch the numbers on short-term/shorter-timeframe trades. Here's the calculations:
3 wins @ 20 pips each = 60 pips = $600
4 losses @ 10 pips each = 40 pips = $400
Total 7 trades @ $20.80 RT = $145.60
$600 - $400 = $200 profit
$145.60 / $200 = 72.8% commission
I based it on 20 pip wins because for the 8 months I've been trading short-term/shorter-timeframes, that's about the most consistent pip level that hits before retracing to hit a tight stop loss.
You can see by the calculations, that's NOT a good percentage to be paying on commissions. Unfortunately, short-term wasn't as forgiving as long-term (you can have more losses to wins and still be profitable with long-term, but not so with short-term).
Another scenario would be having more winning trades than losing ones, so let's see that calculation:
4 wins @ 20 pips each = 80 pips = $800
3 losses @ 10 pips each = 30 pips = $300
Total 7 trades @ $20.80 RT = $145.60
$800 - $300 = $500 profit
$145.60 / $500 = 29.1% commission
Okay, better but still too high a percentage to be feasible.
Let's try putting a higher TP target and a slightly wider SL (although, I don't know about you, but the higher TP targets were rarer for me to hit consistently - I'm in a timezone where I'm sleeping during the U.S. sessions where those kind of big moves normally happen. The wider SL is also more realistic, because 10 pips normally is a little too tight with how volatile the forex market is and I normally got stopped out more often when using 10 pip SL):
3 wins @ 50 pips each = 150 pips = $1500
4 losses @ 20 pips each = 80 pips = $800
Total 7 trades @ $20.80 RT = $145.60
$1500 - $800 = $700 profit
$145.60 / $700 = 20.8% commission
Hmmmm, still not great.
Until I did these calculations, I didn't "tangibly" realize just how unprofitable short-term/shorter-timeframe trading was. Funny, because just a couple days ago, I decided I had enough with trading short-term/shorter-timeframes and am making the switch to go with trading long-term/higher-timeframes. GAD, but after crunching the above numbers, I'm now convinced and have no doubt that I've chosen the better route to go!! I only wish that I had realized this earlier, lol!
Anywho, even if I was with a DD and not paying commissions persay, I still feel that it's the same situation with the higher spreads. It's just that you don't see it being taken out, it's being done in the background (like the taxes coming out of your paycheck when you're employed by a company .vs when you're a self-employed sole-proprietor you feel and see the chunk that you have to pay out yourself). It's all psychological. Commissions (ECN) .vs charging it via the spreads (DD) ... it's all the same thing and the bottom-line is ... you're not being as profitable trading in the short-term/shorter timeframes either way.
I was going to post this in the EFX thread with the rest of my posts, but instead I thought this was more about "short-term/shorter-timeframes .vs long-term/higher-timeframes" than the commission aspect.
Anyway, if the above calculations makes any difference to anybody who was trading short-term/shorter-timeframes and you now get hit by the epiphany of it (like I did, lol), then it was worth posting this here, lol.
Okay, I am going to start my journal with my new "long-term/higher-timeframe" trades and see if I've made the right decision.
Good luck to everyone and ... oh, oh, I just noticed as I'm writing this that NZD/USD is getting real close to that .7736 resistence level I was waiting for!! Let's see if it breaks through it! If it does, I will be getting ready to enter and endeavor in my first long-term/higher-timeframe trade! And if it doesn't break it yet, I'll just wait till it does, because it will at some point eventually
Whoo-hooo, I'm excited! Oops, I'm not supposed to get emotional, no emotion in trading, okay, I'm calm now (ack, to heck with calm, I'm excited!!).
... about ECN commissions and in that thread I posted a scenario regarding what a long-term/higher-timeframe trend trade could cost in commissions even with more losses to wins. It looked like this:
3 wins @ 200 pips each = 600 pips = $6000
4 losses @ 50 pips each = 200 pips = $2000
Total 7 trades @ $20.80 RT = $145.60
$6000 - $2000 = $4000 profit
$145.60 / $4000 = 3.64% commission
I realize that 200 pips is actually conservative for a long-term/higher-timeframe trend, as it could go 400 - 500+ pips before it starts retracing in many cases, but I used this as a more conservative scenario.
Well, all this calculating got me excited and I went on to do more calculating (my husband is gonna be proud of me, lol, since I hate math, lol). I figured "okay, what if you need to put a 100 pip SL in case 50 was too tight," so I did the following calcs:
3 wins @ 200 pips each = 600 pips = $6000
4 losses @ 100 pips each = 400 pips = $4000
Total 7 trades @ $20.80 RT = $145.60
$6000 - $4000 = $2000 profit
$145.60 / $2000 = 7.28% commission
As I mentioned in the other thread, to me, that's still a very reasonable commission rate to pay when making a profit.
Now, the above scenario was based on having less winning trades to losing ones (3 wins, 4 losses), but the $ amount value was greater on the wins, thus you still come out ahead. Just imagine if you had more winning trades than losing ones, lol!
Having done the commission analysis for long-term trades, I then got curious to crunch the numbers on short-term/shorter-timeframe trades. Here's the calculations:
3 wins @ 20 pips each = 60 pips = $600
4 losses @ 10 pips each = 40 pips = $400
Total 7 trades @ $20.80 RT = $145.60
$600 - $400 = $200 profit
$145.60 / $200 = 72.8% commission
I based it on 20 pip wins because for the 8 months I've been trading short-term/shorter-timeframes, that's about the most consistent pip level that hits before retracing to hit a tight stop loss.
You can see by the calculations, that's NOT a good percentage to be paying on commissions. Unfortunately, short-term wasn't as forgiving as long-term (you can have more losses to wins and still be profitable with long-term, but not so with short-term).
Another scenario would be having more winning trades than losing ones, so let's see that calculation:
4 wins @ 20 pips each = 80 pips = $800
3 losses @ 10 pips each = 30 pips = $300
Total 7 trades @ $20.80 RT = $145.60
$800 - $300 = $500 profit
$145.60 / $500 = 29.1% commission
Okay, better but still too high a percentage to be feasible.
Let's try putting a higher TP target and a slightly wider SL (although, I don't know about you, but the higher TP targets were rarer for me to hit consistently - I'm in a timezone where I'm sleeping during the U.S. sessions where those kind of big moves normally happen. The wider SL is also more realistic, because 10 pips normally is a little too tight with how volatile the forex market is and I normally got stopped out more often when using 10 pip SL):
3 wins @ 50 pips each = 150 pips = $1500
4 losses @ 20 pips each = 80 pips = $800
Total 7 trades @ $20.80 RT = $145.60
$1500 - $800 = $700 profit
$145.60 / $700 = 20.8% commission
Hmmmm, still not great.
Until I did these calculations, I didn't "tangibly" realize just how unprofitable short-term/shorter-timeframe trading was. Funny, because just a couple days ago, I decided I had enough with trading short-term/shorter-timeframes and am making the switch to go with trading long-term/higher-timeframes. GAD, but after crunching the above numbers, I'm now convinced and have no doubt that I've chosen the better route to go!! I only wish that I had realized this earlier, lol!
Anywho, even if I was with a DD and not paying commissions persay, I still feel that it's the same situation with the higher spreads. It's just that you don't see it being taken out, it's being done in the background (like the taxes coming out of your paycheck when you're employed by a company .vs when you're a self-employed sole-proprietor you feel and see the chunk that you have to pay out yourself). It's all psychological. Commissions (ECN) .vs charging it via the spreads (DD) ... it's all the same thing and the bottom-line is ... you're not being as profitable trading in the short-term/shorter timeframes either way.
I was going to post this in the EFX thread with the rest of my posts, but instead I thought this was more about "short-term/shorter-timeframes .vs long-term/higher-timeframes" than the commission aspect.
Anyway, if the above calculations makes any difference to anybody who was trading short-term/shorter-timeframes and you now get hit by the epiphany of it (like I did, lol), then it was worth posting this here, lol.
Okay, I am going to start my journal with my new "long-term/higher-timeframe" trades and see if I've made the right decision.
Good luck to everyone and ... oh, oh, I just noticed as I'm writing this that NZD/USD is getting real close to that .7736 resistence level I was waiting for!! Let's see if it breaks through it! If it does, I will be getting ready to enter and endeavor in my first long-term/higher-timeframe trade! And if it doesn't break it yet, I'll just wait till it does, because it will at some point eventually
Whoo-hooo, I'm excited! Oops, I'm not supposed to get emotional, no emotion in trading, okay, I'm calm now (ack, to heck with calm, I'm excited!!).